April 9 (Bloomberg) -- LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury goods company, reported its fastest fashion and leather-goods revenue growth in two years, cushioning an unexpected decline in quarterly alcohol sales.
First-quarter fashion and leather-goods sales climbed 9 percent on an organic basis, Paris-based LVMH said today in a statement after European markets closed. That was the fastest growth since the first quarter of 2012 and compared with a 3 percent increase in the same period last year. Analysts predicted a 6 percent sales gain.
LVMH is introducing more expensive products at handbag maker Louis Vuitton, while increasing investment at some of its smaller fashion brands amid competition from lower-priced labels such as Michael Kors and Coach Inc. Italian rival Prada SpA last week forecast slowing same-store sales growth in the financial year through January 2015, citing a strong euro and weakening demand in China.
The “better-than-expected performance in the all-important fashion and leather goods division should be enough to warm spirits despite disappointing wines and spirits results,” said Luca Solca, an analyst at Exane BNP Paribas in London. He has an outperform rating on the stock.
Sales of wines and spirits fell 3 percent on an organic basis as a Chinese crackdown on lavish spending curbed demand for cognac, LVMH said. Analysts predicted growth of 3 percent. It was the unit’s first decline since the fourth quarter of 2009, according to Mario Ortelli, an analyst at Sanford C. Bernstein in London.
Total revenue advanced 4 percent to 7.21 billion euros ($10 billion), LVMH said. Analysts predicted 7.4 billion euros, according to the median of 17 estimates compiled by Bloomberg.
French spirit producers are struggling due to a clampdown by Chinese President Xi Jinping’s government on lavish spending on banqueting and gifts, including high-priced variants of cognac. Competitor Pernod Ricard SA, which makes Martell, said Feb. 13 that first-half sales to China fell 18 percent on an organic basis as the government continued to restrict spending.
The “corruption crackdown is clearly still hurting” cognac demand, said Rahul Sharma, managing director of Neev Capital in London.
Remy Cointreau SA, the maker of Remy Martin, said in January it anticipated no relief for sales of cognac from Chinese New Year, which fell at the end of that month and is a key festival for consumption and gifts of the spirit. Weak cognac sales led the company to reiterate a forecast for a “significant double-digit decline” in profit this year.
“With the intensity of the anti-extravaganza and anti-corruption campaigns getting stronger, we expect the underlying drag on depletions in China to continue,” Trevor Stirling, an analyst at Sanford C. Bernstein in London, wrote in a note April 7. Stirling doesn’t expect a recovery in Chinese cognac consumption until 2015 “at the earliest.”
LVMH doesn’t report earnings at the end of the first quarter. The shares rose 1 percent to 136.45 euros today in Paris, giving the maker of Celine sandals and Belvedere vodka a market value of 69.3 billion euros. They have advanced 2.9 percent this year.
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